record levels because the company misjudged just how much the U.S.
market would decline this year.
The number of units in dealership stock and en route have swelled to
about 376,000. That's about 100,000 units more than were on the ground
last summer, and up from about 348,000 a year ago.
The main problem: Toyota produced lots of pickups and SUVs, a gamble
that has not paid off.
"We have an overabundance of trucks," said a dealer in the region of
giant distributor Southeast Toyota.
Higher inventories certainly aren't bad news for all Toyota dealers.
Some that struggle to get enough product see an opportunity to expand
their businesses.
Still, Toyota's vaunted inventory controls have come up against market
forces even it cannot tame. Toyota had based its production plans on a
rosy industrywide U.S. sales forecast of 16.1 million units this year.
As of March 1, the days supply for Toyota and Scion was 58 days, a
level not seen since early 2003, just before the U.S. invasion of
Iraq. Although that shrank to 51 days by April 1, the raw number of
units on the ground barely budged. Since 2000, the average supply on
April 1 has been 44 days.
The recession and spiking gasoline prices are hammering all
automakers, and Toyota's days supply is still lower than those of
Dodge, Chevrolet and Ford. And no Toyota dealer is complaining about
having too many Prius, Corolla, Camry or Yaris units.
Of course, higher inventories also are partly a function of higher
sales levels - and Toyota sales have risen steadily for years. But
Toyota/Scion volume was down 5.1 percent to 505,232 units during the
first three months of 2008.
"February was the highest dealer stock in the history of our region in
terms of gross units," said the Southeast Toyota dealer. "I don't
think we have hit an objective since July or August."
A Southeast Toyota spokeswoman declined to comment.
In some regions, Toyota's "turndown" inventory - vehicles that no
dealer wants to claim - has risen sharply. Those regional pools
consist mostly of the Tundra full-sized pickup, Sienna minivan and
Sequoia and 4Runner SUVs.
"In the past, there have been only a few vehicles in the turndown
pool," the Southeast Toyota dealer said. "Last month, Southeast Toyota
had 9,700 vehicles that had been turned down twice by dealers and
either sitting at the port or at sea. That's a significant number."
Toyota executives and spokespeople declined to comment for this
article. In the past, executives have said Toyota will whittle high
inventories with a combination of production cuts and increased
incentives.
The Southeast dealer is unimpressed with Toyota's efforts to date.
"Right now we have zero dealer cash from either TMS or Southeast
Toyota," the dealer said. "All the money is in the form of a
(consumer) rebate. We ought to have dealer cash to make that
transaction happen. We've been told how rich Toyota is, so where is
the money?"
Toyota Division's per-vehicle incentives in March were $873, up from
$759 for March 2007, according to Edmunds.com data. That compares to
$2,508 per vehicle for Chevrolet, $2,830 for Ford Division and $4,264
for Dodge in March 2008.
Turn and earn
Toyota uses a variation of the turn-and-earn inventory system. If a
dealer sells more vehicles, he earns a larger allocation, fueling more
growth. Building a larger store also earns more cars. But a dealer
also can turn down the extra cars if he doesn't think he can sell
them.
Those unwanted vehicles go into a regional pool from which all area
dealers can choose. After several days, the vehicles not taken are
placed in another inventory pool. Any vehicles unclaimed after that
are placed in the turndown pool. Usually, those vehicles have
hard-to-sell options packages, or are slow-sellers, such as the Camry
Solara coupe during its last days.
Toyota then places incentives on the leftovers to unload them to
dealers. But the slow economy and high gasoline prices mean even
recently redesigned vehicles like the Tundra and Sequoia aren't
meeting sales expectations and end up in the turndown pool.
Said a Northern California dealer, who also declined to be named:
"What do you think happens to a region when a dealer builds a new
store and earns all these extra cars, but then he doesn't take them?
Those cars get allocated to the rest of us, and we get beat on to take
them."
But another Southeast Toyota dealer said Toyota has never required a
dealer to take an unwanted vehicle.
"They may sell hard at times," the dealer said, "but I am not aware of
them ever forcing anyone to take cars."
Some aggressive Toyota dealers see the higher inventories as a chance
to boost their turn-and-earn.
Cliff Cummings, owner of Toyota of San Bernardino (Calif.) is taking
advantage of his neighboring dealers' caution. The Los Angeles region
has less inventory now than a year ago, dropping from 42,000 units in
March 2007 to 28,000 at year end, before creeping to 32,000 this
March, Cummings said.
"I will bet you lunch that my second quarter will beat last year's,"
Cummings said. "To my way of thinking, if I'm buying cars, I'm happy."
Midwest antes up
With many California and Florida dealers hurting from the recession,
Midwestern stores are eager to snap up the extra vehicles.
Steve Cain, general manager of Lewis Toyota-Scion in Topeka, Kan., is
banking on an economic turnaround to fuel growth. Last August he had
nine vehicles in stock. Now he has 130. But having sold 80 cars in
March, Cain isn't worried about oversupply.
"We're a little on the full side, but we've been asking for more
inventory for two years and now we finally got it," Cain said. "This
is a great opportunity. You have to take it when you can get it."

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